Mind the Gaps – On Complexity & Adaptive Risk Management
July 2020. The COVID-19 pandemic was raging with serious economic, political, and social impacts. Heavy fighting broke out between Armenia and Azerbaijan. Belarus was preparing to hold an election in which Alexander Lukashenko was declared the victor in the August 9 vote, leading to mass protests, police repression, and further political turmoil.
That was the time when RECONOMY started. It’s an ambitious but highly relevant regional inclusive and green economic development program of the Swedish International Development Cooperation Agency (Sida) managed by Helvetas and its partners. The program covers 12 countries of the Eastern Partnership (EaP) region and the Western Balkans.
When a development initiative fails to plan in assessing and managing risks, it’s planning to fail! Let’s face it. Often development initiatives prepare elaborate risk analysis and mitigation strategies that are included in technical proposals. The problem we’ve found is that the strategies are rarely used once donors approve the technical proposals.
Let alone for a program of this size and complexity, the start of a development initiative covering one country and a few sectors or issues can also be messy. Add to this messiness the dynamic and complex nature of the region and issues that RECONOMY covers.
In light of the context and setup of the program, even the simplest activity can turn into unexpected problems. As much as there’re opportunities, risks are inherent in managing the program and so is the need to have a risk management plan to address them.
Can RECONOMY really afford not to?
What risks exactly are we talking about?
A risk could be a political instability, a return to violent conflict, economic deterioration, natural disaster, humanitarian crisis, or cross-border tensions. These are contextual risks. RECONOMY has limited influence on the contextual risks in the short term, but it uses its diagnostic processes and the design of interventions to facilitate conditions to minimize or mitigate the medium and long-term aspects of risks.
Take the current COVID-19 pandemic and rising tension between Ukraine and Russia. Or the ongoing political upheaval in Belarus and the fragile truce between Armenia and Azerbaijan after a devastating war. Partners could be exposed, or interventions/pilots delayed.
Other areas of risk are possible management failures and fiduciary losses, exposure of staff to security risks, and reputational and political damage to the donor agency. These are institutional risks focusing on how Helvetas, its partners, or Sida’s reputational or operational security and safety may be adversely affected.
It’s also possible that the program can cause harm to people and the planet or turn into another development failure. RECONOMY may also exacerbate social tensions or undermine state capacity. These are programmatic risks related to weaknesses of RECONOMY’s design and implementation. Already, the program has faced ‘scope creep’ risk – sometimes known as ‘requirement creep’ – due to the broader remit/focus of the program.
Addressing risks through balancing control & flexibility
With the above in mind, you might be asking: how is the program doing differently to manage risks?
As Alex Sidorenko and Elena Demidenko aptly put it, ‘risk management isn’t just about tools and techniques; it’s about changing …. culture and the mindset of management and employees’. It’ll be unrealistic to achieve this overnight, and hence managers need to start small by ‘embedding elements of risk analysis into various decision-making processes, expanding the scope of risk management over time’.
What Sidorenko and Demidenko wrote is in line with iterative risk management – also known as adaptive management. It’s a long-established approach that uses monitoring, research, evaluation, and learning process to improve future management strategies. The approach is based on the idea that current decisions are essentially constrained by imperfect knowledge and bias; cycles of reassessments are necessary to improve the performance of strategies and actions.
Conventional risk management focuses on prediction, response planning, and prevention of risks with the main objective of ‘mechanistic controlling’. Yet such an approach is only suitable for a subset of known and knowable risks. This’s because there’s an increasing need to balance administrative and financial risk management and strategic and operational capacities – that is, giving sufficient space for innovation and adaptive management.
As RECONOMY applies principles of inclusive systems – also known as Market Systems Development (MSD) – its risk management focuses on starting with current risk and then looking at future risks within a framework of decision making under uncertainty. The approach that RECONOMY seeks to follow incorporates learning at the core of its methodology by balancing control and flexibility.
In other words, by encouraging the ‘what if?’ question, RECONOMY’s risk management approach promotes the development of flexible approaches where decisions are taken at the right time and can be adjusted later.
RECONOMY uses a ‘risk register’ for recording all identified risks throughout the program. The program has started risk management by listing potential risks and their characteristics. This has already happened at the beginning of the program. And it’s also periodically happening throughout after hitting the key milestones (e.g., diagnosis, intervention design, partner engagement, strategic review, etc.).
Let’s be a bit more specific. For risk identification, the program uses analysis of existing documents, interviews with experts and consulting stakeholders and partners, conducting regular reviews internally and externally (fortnightly, quarterly, six-monthly, and annually), conducting peer reviews with other projects for considering the lessons learned and other ways.
It doesn’t stop there, either. There’s also risk prioritization to determine which risk RECONOMY should act upon first. This’s based on the likelihood of a risk and the impact that it’d make. Risk prioritization can be achieved by evaluating the risks against RECONOMY’s objective to determine which are more likely to occur and which will have a higher impact. A risk prioritization matrix is used for evaluation.
The purpose of risk prioritization is to examine how the program outcomes and objectives might change due to the impact of the risk event. Once the risks are identified, the program tries to analyze for identifying the qualitative and quantitative impact of the risks on the program so that appropriate steps can be taken to mitigate them. What’s critical here is to understand stakeholders’ risk tolerance or appetite.
Then comes taking concrete measures to address the risks. You may wonder what options exist to address the risks. Unfortunately, the options are limited, ranging from avoiding, accepting, transferring, or mitigating risks.
They can be preventive to limit undesirable outcomes such as corruption. They can include corrective to amend undesirable outcomes that have occurred and provide a way to achieve some recovery against loss or damage. Directive measures aim at ensuring a particular outcome is achieved) while detective actions are for identifying occasions of occurrence of undesirable outcomes.
The good news is that not all risks carry the prospect of loss or damage. Opportunities may also arise from the risk identification process, as types of risk with positive impact or outcomes are identified.
However, it’s also important to have continuous monitoring, documenting, and reflecting on the learning from risk management. This helps to ensure that the risk response strategy and the risk treatment action plan are implemented and progressed effectively. RECONOMY’s monitoring and results measurement (MRM) system, as well as knowledge management, learning, and communication (KMLC), are used to know what works and what does, and why in the risk management process.
Programs like RECONOMY are complex not just because of size, cost, and duration, or the challenge of integrating advances in technology. It’s also because the systems in which development work takes place are complex adaptive systems.
This means that designing, implementing, monitoring, and measuring results isn’t about following checklists or formulae. Thus, identifying, prioritizing, and addressing risks are crucial steps in managing successful development initiatives.
It’s possible than high-impact risks may go undetected, and they can be forgotten or ignored. Adaptive risk management evaluates how programs like RECONOMY respond and manage risks by learning and adapting to the changing environment. This also means new skills — both soft and hard — are necessary for risk management approaches. Thus, programs like RECONOMY need people with the skills and knowledge to cover across risk topics (e.g., compliance, operational risk, resilience).
So, perhaps it makes sense to move away worrying about the ‘nasty threat’ risks to facilitating the creation of ‘risk enablement’. What we mean by this is that rather than seeing risks as issues that must be avoided by any means, we need to be prepared to embrace them and learn about how to deal with them.
By adopting the above approach, we aspire to use risk management to look one step ahead and to anticipate or envisage events that, if they occur, could influence the program or its interventions. From this perspective, risk management breaks the vicious cycle of rigidity imprinted by LogFrames.
We also hope that our learning enables us to use risk management for not only in terms of threats but also concerning opportunities that could facilitate the implementation of the activities or achievement of the results. Thus, risk management implies purposeful scanning of the environment for newly emerging threats and opportunities that could influence the implementation of interventions.
As it matures, RECONOMY aims to understand and act on the relationship among different risks and cascade the possible impacts they could have on the program’s strategic objective.
In a nutshell, it’s vitally important for a regional program like RECONOMY to address the uncertainties we face and manage the risks. We as development practitioners need to embrace this thinking. Only then can we talk about the increased effectiveness of international development.